Happy Forgings Q1 FY27: Record revenue and a step-up in profitability

Happy Forgings Limited began FY27 with its strongest quarterly revenue so far. In Q1 FY27, revenue from operations rose to Rs 449 crore, up 27.0 percent year on year and 6.0 percent sequentially. The quarter stood out not just for growth, but for a clear improvement in profitability. EBITDA increased 39.3 percent year on year to Rs 141 crore, and profit after tax rose 39.2 percent to Rs 91 crore. EBITDA margin stayed above 30 percent for the fourth straight quarter at 31.3 percent, while PAT margin reached 20.4 percent, the first time the company crossed the 20 percent mark.

The Managing Director, Ashish Garg, framed the quarter as a mix of volume-led growth and a steady rise in value addition. Finished goods volumes increased 23.1 percent year on year to 17,793 MT, and average realisations improved 3.2 percent to Rs 253 per kg. That combination supported a step-up in gross profit and cash generation, reinforcing the company’s positioning as a forging-led platform that is steadily becoming more machining-led and more export-oriented.

Domestic demand remained strong across commercial vehicles, passenger vehicles, farm equipment and off-highway segments. The company indicated domestic revenues grew around 25 percent year on year, while export revenues rose by over 30 percent year on year as demand improved in international markets. The growth was described as broad-based across segments, which matters because it reduces reliance on any single end market and helps protect margins during cyclical swings.

Growth came from volumes, while mix did the heavy lifting on margins

A key feature of Q1 FY27 was that volume growth did not come at the cost of margin discipline. Gross profit rose to Rs 273 crore, up 33.1 percent year on year, and gross margin improved to 60.7 percent from 57.9 percent, a 276 bps expansion. EBITDA grew faster than revenue as operating leverage kicked in, and EBITDA per kg increased to Rs 79 from Rs 70 in Q1 FY26.

The underlying reason is the company’s continued push into higher value added offerings. Forged and machined parts formed 90 percent of the product mix in Q1 FY27, up from 88 percent in Q1 FY26 and 89 percent in FY26. This matters because machining adds more value per kilogram and helps the company differentiate on capability rather than just capacity.

The sector mix also reflected incremental diversification. In Q1 FY27, commercial vehicles accounted for 16 percent of revenue, up from 13 percent in Q1 FY26. Industrials increased to 8 percent from 6 percent. Passenger vehicles moved to 11 percent from 10 percent, while off-highway moderated to 33 percent from 39 percent. Farm equipment remained steady at 32 percent. The movement is small in any one quarter, but it points to a broader direction: a gradual shift towards a more balanced portfolio across automotive and non-automotive segments.

Management also highlighted diversification through exports and newer sectors. Exports contributed 28 percent of revenue during the quarter, and passenger vehicle and industrial shares increased to 8 percent and 16 percent respectively, alongside an incremental order book that is largely led by exports, passenger vehicles and industrials. The company guided to additional annual revenue ramping up to around Rs 950 crore over the next 2 to 3 years from this incremental order book. The key for investors is execution pace and how quickly this revenue converts into utilisation and cash flow.

Financial snapshot: Q1 FY27 vs Q1 FY26

Capacity and capability build-out is widening the opportunity set

Happy Forgings has spent the last few years building scale while pushing up the complexity of what it can manufacture. The company operates three manufacturing facilities and reported installed forging capacity of 1,52,000 MT and machining capacity of 75,200 MT as of June 30, 2026.

The investor presentation showed a clear strategic intent to expand across heavier and more complex components. Planned additions include high tonnage presses and equipment such as a 14,000T press, 10,000T press, 8,000T press, 6,300T press, 3,150T press, 2,500T press, two 4,000T presses, multiple hammers in the 1.5T to 5.0T range, a 125T hammer, and an 8,000T vertical upsetter for near-net forging. One press was commissioned in Q1 FY27, and planned additions are expected to be operational by FY28.

This capacity build has two layers. The first is forging capacity and the ability to produce heavier parts. The second is machining capacity allied to forging, supported by precision infrastructure. The company highlighted advanced equipment such as Landis and Juncker machines and multiple 5-axis machining centers, with tolerances as low as 5 microns. The stated annual machining capacity includes around 1.5 million crankshafts and other components such as front steering knuckles, differential cases, and planetary carriers, housings and pinions.

The immediate investor question is utilisation. Historical data shows forging utilisation was 59 percent in FY26, while machining utilisation was 82 percent. That gap suggests machining is the tighter constraint today, and incremental machining capacity could be a key lever for revenue conversion and margins. Management also indicated that production and sales volumes are expected to strengthen progressively through FY27, which would help improve utilisation of ongoing investments.

The company also described two projects that could shift the medium-term cost and growth profile. First, installation of equipment for ultra-heavy component manufacturing facilities is expected to be completed by the end of the financial year, enabling commercial revenues from FY28 onwards. Second, a captive solar power project is on track and expected to contribute to operating cost efficiencies from FY28. Both are forward-looking, but they fit the broader theme of building competitiveness through capability and cost structure.

A multi-year margin story that has remained intact

Happy Forgings’ quarterly performance sits on top of a multi-year transformation in scale and profitability. From FY21 to FY26, finished goods volume increased to 63,105 MT, up 1.8 times. Realisations reached Rs 245 per kg, up 1.5 times over the same period, while EBITDA per kg increased from Rs 45 in FY21 to Rs 75 in FY26.

Financially, the company reported sales CAGR of 21 percent between FY21 and FY26, with EBITDA CAGR of 24 percent and PAT CAGR of 28 percent. Margins expanded across the stack. Gross margin improved by 215 bps over FY21 to FY26, EBITDA margin improved by 330 bps to 30.4 percent in FY26, and PAT margin increased by 473 bps to 19.5 percent.

Cash generation has been a central feature of the story, especially given the scale of capex. Between FY21 and FY26, cumulative EBITDA was Rs 1,995 crore and cumulative operating cash flow was Rs 1,277 crore, implying operating cash flow to EBITDA conversion of 64 percent over the period. FY26 in particular saw operating cash flow of Rs 445 crore against EBITDA of Rs 471 crore, a 94 percent conversion. Over the same FY21 to FY26 period, capex totalled Rs 1,393 crore. The presentation explicitly framed this as healthy operating cash accruals largely funding capex.

That cash profile shows up in the balance sheet as well. As of FY26, the company reported cash and bank plus current liquid assets of Rs 421 crore and described a liquidity surplus of around Rs 400 crore plus. Net debt to EBITDA was negative at minus 0.19 times in FY26. Debt to equity was 0.15 times. For an investor, this balance sheet strength reduces execution risk during a capex cycle and gives optionality for organic or inorganic growth.

What to watch from here

The Q1 FY27 print reinforces a few key themes.

First, growth is being supported by both volumes and mix. Volume growth of over 23 percent year on year is strong on its own, but the bigger signal is the margin outcome. Gross margin above 60 percent and EBITDA margin above 30 percent are not typical of a pure forging commodity business. They suggest a business that is moving up the value chain through machining, tighter tolerances, and a wider product set.

Second, diversification is gradually improving. Sector mix is broad-based across commercial vehicles, farm equipment, off-highway, passenger vehicles and industrials. Management commentary suggests exports, passenger vehicles and industrials are key drivers of the incremental order book. If the ramp-up plays out, it could reduce dependence on any single domestic cycle and improve resilience.

Third, the capex program is strategic rather than incremental. Expanding into ultra-heavy components and near-net forging lines, along with planned machining additions, is designed to expand addressable markets. The benefits should show up as higher realisations, better wallet share with OEMs, and improved utilisation over time. But the timing matters. The company expects ultra-heavy facilities to be ready by the end of the year with revenues from FY28, and the solar project to contribute to cost efficiencies from FY28.

Finally, the balance sheet remains a competitive advantage. Strong cash flow conversion and liquidity create room to execute the capacity plan without stressing leverage, while maintaining flexibility to pursue growth.

Happy Forgings entered FY27 with record revenue, expanding margins, and stronger diversification signals. The near-term focus is likely to remain on sustaining EBITDA margins above 30 percent while converting the incremental order book into steady volume and utilisation gains. If that execution holds, the company’s multi-year narrative of profitable growth backed by capability building should stay intact.